Nature and scope, subject matter,
relationship with other subjects and
importance of economics
1.) Nature of Economics:
The economists are also divided regarding the
nature of economics. The following questions are
generally covered in the nature of economics.
a.) Is economics a science or an art?
b.) Is it a positive science or a normative
science?
A. Economics as a science or an art:
Economics is both science and an art. It is
considered as a science because it is a
systematic knowledge derived from
observation, study and experimentation.
Similarly, an art is the practical application of
achieving definite ends. Science teaches us to
know a phenomenon and art teaches us to do a
thing.
For eg; the government takes certain fiscal and
monetary measures to bring down the general
level of prices in the country.
The study of this to bring down the inflation
makes the subject of economics as an art.
B. Normative and Positive Economics:
A positive science studies the fact as they are and
not as they ought to be.
According to Prof. Robbins, economics is a
positive science; it studies the fact as they are. The
task of economics is simply to explore and explain-
knowledge for the sake of knowledge—a study of
cause and relationship.
Normative science studies the facts not as they are
but as they ought to be. It lays down certain norms
or objectives and efforts are made to attain them.
Marshall and Pigou assigned to economics the role
of normative science.
Nature of Economic Laws:
Economics, like all other sciences, has drawn
its own set of generalizations or laws.
Economic laws are nothing more than careful
conclusions and inferences drawn with the
help of reasoning or by the aid of observation
of human and physical-nature. In everyday
life, we see man is always busy in satisfying
his unlimited wants with limited means. In
doing so, he acts upon certain principles.
These principles or generalizations which an
average man usually follows when he is
engaged in economic activity-are named
“Economic Laws”. Economic laws the
statements of general tendencies. According to
Marshall, “Economic laws are those social
laws which relate to branches of conduct,
which the strength of motive chiefly concerned
can be measured by money prices”.
2.) Scope of Economics:
The horizon of economics is gradually
expanding. It is no more a branch of knowledge
that deals with only the production and
consumption. However the basic thrust still
remains on using available resources efficiently
while giving the maximum satisfaction or
welfare to the people on a sustainable basis.
Some of the branches of economics are as
follows:
i. Microeconomics:
It is considered as the basic economics.
It is defined as the branch of economic
analysis which studies the economic
behaviour of the individual unit, a person,
a particular household or a particular firm.
It is also described as a price and value
theory, the theory of household, a firm and
the industry.
ii. Macroeconomics:
It is defined as that branch of that
economic analysis which studies
behaviour of not a particular unit, but of
all units combined together.
It is a study in aggregates, hence also
called as aggregative economics.
In this method, we study how the
equilibrium in the economy is reached
consequent upon changes in the macro-
variables and aggregates.
iii. International Economics:
As the countries of the modern world are realising
the significance of trade with other countries, the
role of international economics is getting more and
more significant nowadays.
iv. Public Finance:
As depression of 1930s realized the role of
government in stabilizing the economic growth,
full branch of economics known as public finance
has emerged to analyse the role of government in
the economy.
v. Development Economics:
As after the second world war, many countries got
freedom from the colonial rule, their economics
required different treatment for growth and
development. Thus, this branch developed as
development economics.
vi. Health Economics:
A new realization has emerged from human
development for economic growth. Hence, branch
like health economics are gaining momentum.
vii. Environmental Economics:
Unchecked emphasis on economic growth is
facing a new challenge from the environmental
side. Hence, environmental economics has emerged
as one of the major branches of economics which is
considered as significant for sustainable
development.
viii. Urban and Rural Economics:
Location as well plays important role for economic
attainments. There is also much debate on urban-
rural divide.
Hence, economists have decided that there should
be specific focus on urban areas and rural areas.
Therefore, there is expansion of branches like
urban and rural economics.
3. Subject Matter of Economics:
There is a difference of opinion among economists
regarding the subject matter of Economics.
Adam smith, the father of modern
Economic Theory, defined Economics as a
subject, which is mainly concerned with the
study of nature and causes of generation of
wealth of nation.
Impressed by the condemnation of the l9th
century writers, like Carlyle and Ruskin,
Marshall introduced the concept of welfare in
the study of Economics. Marshall has shifted
the emphasis from wealth to man. He gives
primary importance to man and secondary
importance to wealth.
The Robbins’s concept of the subject-
matter of Economics is that “Economics is a
science which studies human behaviour as a
relationship between ends and scarce means
which have alternative uses”. According to
Robbins (1) human wants are unlimited (2)
means at his disposal to satisfy these wants are
not only limited, (3) but have alternative uses.
Man is always busy in adjusting his limited
resources for the satisfaction of unlimited
ends. The problems that centre round such
activities constitute the subject-matters of
Economics.
Paul Samuelson, however, included the
dynamic aspects of economics in the subject
matter. According to him, Economics is the
study of how man and society choose with or
without money, to employ productive uses to
produce various commodities over time and
distribute them for consumption now and in
future among various people and groups of
society”.
Economics can be studied through a) traditional
approach and (b) modern approach.
a) Traditional Approach:
Economics is studied under five major divisions
namely consumption, production, exchange,
distribution and public finance.
i. Consumption: The satisfaction of human wants
through the use of goods and services is called
consumption.
ii. Production: Goods that satisfy human wants are
viewed as “bundles of utility”. Hence production would
mean creation of utility or producing (or creating)
things for satisfying human wants. For production, the
resources like land, labour, capital and organization are
needed.
iii. Exchange: Goods are produced not only for self-
consumption, but also for sales. They are sold to buyers
in markets. The process of buying and selling
constitutes exchange.
iv. Distribution: The production of any agricultural
commodity requires four factors, viz., land, labour,
capital and organization. These four factors of
production are to be rewarded for their services
rendered in the process of production. The land owner
gets rent, the labourer earns wage, the capitalist is given
with interest and the entrepreneur is rewarded with
profit. The process of determining rent, wage, interest
and profit is called distribution.
v. Public finance: It studies how the government gets
money and how it spends it. Thus, in public finance, we
study about public revenue and public expenditure.
b) Modern Approach:
The study of economics is divided into Microeconomics
and Macroeconomics
i. Microeconomics:
It is considered as the basic economics.
It is defined as the branch of economic analysis
which studies the economic behaviour of the
individual unit, a person, a particular household or
a particular firm.
It is also described as a price and value theory, the
theory of household, a firm and the industry.
ii. Macroeconomics:
It is defined as that branch of that economic
analysis which studies behaviour of not a particular
unit, but of all units combined together.
It is a study in aggregates, hence also called as
aggregative economics.
In this method, we study how the equilibrium in the
economy is reached consequent upon changes in
the macro-variables and aggregates.
4. Relationship of Economics with Other Subjects:
Economics is classified as a social science. This view
makes economics an academic relative of political
science, sociology, psychology and anthropology.
A. Economics and Psychology:
Inevitably, this definition of the ‘territory’ of economics
leads to some overlapping with the other disciplines.
Psychologists and economists share an interest in what
motivates people to take certain action.
However the primary interest of economists lies in
those actions that are reflected in market activity or in
economic decisions made through government.
B. Economics and Sociology:
While sociologists are interested in all facts of
organised human activity, economists are interested
mainly in organised activities that related o the
production and consumption of goods and services. As
a general rule economists assume that individuals
pursue their self-interest and respond to various signals
or incentives in the light of that self-interest.
C. Economics and Political Science:
Economics interacts with almost all other academic
disciplines. It is intimately intertwined with current
events, and it has a significant effect on political events,
both domestic and international. Economics has various
things common with political science. For example, in
both subjects we teach public finance, financial
relations between the centre of the study as also the
economics of planning.
D. Economics and Decision Sciences:
Economics is also part of a group of disciplines called
decision sciences which includes some branches of
statistics, applied mathematics, operational research,
and some areas of management and engineering. All
of these disciplines deal with how individuals and
groups make decisions.
Economists are specifically interested in those decisions
relating to production consumption and resource use.
As a decision science, economics is closely related to
business and management courses.
E. Economics and Statistics:
Statistics can be used to test the consistency of
economic theory and measure the responsiveness of
economic variables to changes in policy. At the same
time, economic theory helps to explain which economic
variables are likely to be related and why they are
linked. Statistics do not tell their own story.
We must utilise economic theory to properly interpret
and better understand the actual statistical relationships
among economic variables.
5. Importance of Economics:
Study of economics helps to conquer poverty.
Economics teaches the knowledge of economic
systems.
Economics teaches modern methods of
production.
Study of economics helps in proper budgeting.
Study of economics helps to increase national
wealth.
Study of economics helps to formulate budgets.
Study of economics helps to frame law.
Deals with shortage of resources and resources
distribution in society.
Deals with economic crisis and daily application
of economics in everyday life etc.
